HR6836-119

What This Bill Does

The Beginning Farmer Tax Incentive Act adds section 139M to the Internal Revenue Code. It excludes 40 percent of gain from the sale or exchange of qualifying farmland held for more than one year when the farmland is transferred to a beginning farmer, capped at $1.5 million minus the taxpayer exclusion amount used in the prior four taxable years. It also excludes income from leasing or renting qualifying farmland to a beginning farmer when the lease or rental agreement lasts no more than 10 years, capped at $25,000 per taxpayer per year. Qualifying farmland must be farm property used for farming purposes and must have been owned and materially participated in by the taxpayer, a family member, or a revocable grantor trust for at least five years during the prior eight years. The bill defines beginning farmer by reference to prior Internal Revenue Code treatment and sets family, ownership, and participation rules for the exclusion.

Who Benefits and How

Beginning farmers benefit because sellers and landowners receive tax incentives to sell, lease, rent, or enter crop-share arrangements with them. Farmland owners benefit from a 40 percent capital-gain exclusion on qualifying sales and an income exclusion for qualifying leases or rentals. Rural communities benefit if the tax preference makes land transfer to new farmers more financially attractive. Farm families using qualifying trusts benefit from rules that recognize family ownership and material participation.

Who Bears the Burden and How

IRS tax administrators must implement the new section, track the $1.5 million five-year exclusion cap and $25,000 annual rental cap, and police qualifying farmland and beginning-farmer eligibility. Farmland owners must document holding periods, family ownership, material participation, lease duration, and transferee status. Federal taxpayers bear the revenue cost of excluding qualifying gains and rental income from taxable income.

Key Provisions

• Adds new Internal Revenue Code section 139M for beginning-farmer farmland transfers.
• Excludes 40 percent of qualifying farmland sale gain when land is transferred to a beginning farmer.
• Limits the capital-gain exclusion to $1.5 million reduced by exclusions used in the prior four taxable years.
• Excludes qualifying farmland lease or rental income for agreements up to 10 years.
• Caps the lease or rental income exclusion at $25,000 per taxpayer per year.
• Requires qualifying farmland ownership and material participation for at least five years during the prior eight years.